Money Matters

Bumpy ride

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 11, 22

The country is facing a lingering economic crisis that is particularly adversely impacting industrial activities, and there seems to be no respite soon. Large-Scale Manufacturing (LSM) output, which contributed 9.2 percent to GDP (Gross Domestic Product), had registered 11.7 percent growth during the year 2021-22, based on the 2015-16 year benchmark. However, there has been contraction witnessed since the start of the current fiscal year, and the shrinking trend is likely to continue; overall growth being projected to slow down to 7.4 percent by the end of 2022-23.

Bumpy ride

The country is facing a lingering economic crisis that is particularly adversely impacting industrial activities, and there seems to be no respite soon. Large-Scale Manufacturing (LSM) output, which contributed 9.2 percent to GDP (Gross Domestic Product), had registered 11.7 percent growth during the year 2021-22, based on the 2015-16 year benchmark. However, there has been contraction witnessed since the start of the current fiscal year, and the shrinking trend is likely to continue; overall growth being projected to slow down to 7.4 percent by the end of 2022-23.

The automotive industry, a major component of the LSM, has value added as 2.8 percent to total GDP, contributing largely to revenue collection and job creation. Currently, the automotive industry, till recent years a fastest growing industry in the region, is embroiled in many crises including high financing costs, rupee devaluation and global slowdown. As the production and sales of motor vehicles have plummeted, performance of the automotive sector has recorded lowest utilization of installed capacity particularly in production of cars, trucks, buses and light commercial vehicles, to the extent of 30 percent-49 percent on average.

Annual installed capacity of various manufacturers and assemblers for producing all types of vehicles is 500,600 units, whereas annual demand is not more than 300,000. Again, the situation has been complicated due to free availability of imported vehicles, restrictions of the State Bank of Pakistan (SBP) on import of auto parts/kits, and high interest rate. This has resulted in a massive fall in production and sales and there have been challenges for exports too. Sales of motor vehicles dropped to about 53 percent in July, 46percent in August, 50 percent in September and 36 percent in October. Resultantly, three major car makers had closed down their production plants for significant periods each month during August-October.

The market was dominated by the Japanese brands of Toyota, Honda and Suzuki, until the government implemented the Automotive Development Policy 2016-2021 which allowed almost two-dozen motor vehicle manufacturers and assemblers to market their different brands of passenger cars, commercial vehicles and motorcycles. The notable brands are KIA, Hyundai and MG, besides various Chinese makes, who were initially allowed import of CBU (complete built-up) units as per Policy. The government had projected a demand of 350,000 passenger cars and 7,900 light commercial vehicles for 2021, with a 24 percent rise in demand in 2022, which did not work out to be true. Sales of locally assembled cars in the first quarter of current year 2022-23 (July-September 2022) was only 34,472 compared to 68,897 cars sold during the corresponding period of last year. The myopic and flawed automotive industry policy that had no pre-qualification criteria for potential car producers/assemblers, among various factors, resulted in downfall of the automotive subsector.

Statistics about production of various automobiles during the year ending June 2022 present a realistic picture comparing with highs and lows of the industry in the past. Total cars production was 226,433 compared to 217,774 in 2018 when the new car manufacturers/assemblers pursuant to the Automotive Policy had not entered the market. Trucks production was 5,659 in 2022 against the highs of 9,326 in 2018, and buses 661 against 1,762 in 2005. Also, 44,421 jeeps and pickups were produced against 22,970 produced in 2007, whereas there were no SUVs (sports utility vehicles) produced in 2022 compared to 802 SUVs produced in 2004. Nonetheless, there was an exponential increase in production of two- and three- wheelers from 87,504 units in 1999 to 1,826,467 in 2022.

Seemingly, the market for cars currently being manufactured/assembled in Pakistan has almost saturated. Future of the automotive industry is promising, however, as the local production of hybrid electric vehicles (HEVs) is on cards. A local company in partnership with the Chinese, has rolled out the first batch of the HEV this month. On the other hand, a well-known Japanese carmaker plans to invest $100 million to produce HEVs locally, setting up modern facilities and bringing the latest technology.

The negative growth of the automotive industry has also adversely affected the performance of auxiliary and ancillary industries, consisting of 375 manufacturing units in the organized sector and another some 1,600 vendors in the informal sector. Deletion or localization levels achieved over a period of years are satisfactory (though the deletion level excludes parts for engine, gearbox, and transmission) i.e. 32 percent to 73 percent for various models of passenger cars and commercial vehicles, and 78 percent to 92 percent for motorcycles and rickshaws. But, introduction of new models and brands of motor vehicles has reduced the levels of deletion achieved. Interestingly, export of auto parts in 2021-22 at $20.035 million was more than that of combined export of tractors, cars, and other vehicles which amounted to $14.174 million.

The Tractor industry has registered robust growth in recent years. However, the measures announced by the present government, if implemented, to allow import of used tractors and to encourage entry of additional tractor manufacturers on fiscal concessions will adversely affect the tractor industry too, which is currently producing 58,880 units a year against annual installed capacity of 100,000 units. Tractor production of Al-Ghazi-New Holland, Millat-Massey Ferguson, and Orient-IMT brands has attained a deletion level of as high as 90 percent, which will be reversed if new brands are introduced in the market.

To achieve the cherished goal of self-reliance through higher value-addition and optimal indigenization the government should support the automotive industry through a revised framework revisiting the existing auto policy, and proposed action plan. Also, It is imperative that the long-awaited integrated industrial policy be finalized, announced and implemented, without further delay, to stimulate the process of industrialization at national level.


– The writer is retired chairman of the State Engineering Corporation